Property development finance: how development loans work

Yes, on the right scheme. Lenders that back first time developers want a modest project, full planning permission, a realistic appraisal with a contingency, and a professional team that has built something similar before. They usually lend a smaller share of the costs than they would to an experienced developer, so expect to put in more of your own money. As a whole-of-market commercial finance broker, Smart Funding Solutions puts first schemes to the development lenders on our panel that accept a limited track record.

What makes a first scheme easier to fund

• Size. A single house, a small number of units or a conversion, rather than a large new build.
• The build contract. A fixed price contract with an established contractor, so the cost risk does not sit with you alone.
• Relevant experience. Work in construction, surveying, refurbishing your own properties or running projects for an employer all count.
• The exit. Local sales evidence for the finished units, or a plan to refinance them onto a mortgage and let them.

Lenders also check that building control is lined up, and GOV.UK explains how building regulations approval works in England and Wales, while Scotland uses building warrants.

Does a joint venture help a first time developer get funding?

It can make a real difference. Partnering with an experienced developer, or appointing a project manager with a record of completed schemes, gives the lender the track record it is looking for, and a partner who brings land or cash can lower the amount you need to borrow. Lenders will want the joint venture agreement, each party's role and who gives the personal guarantees. Some first time developers start with a heavy refurbishment instead, using refurbishment finance, before moving to ground up building. Test the figures with our development finance calculator, read about mezzanine finance for the gap above senior debt, and see which lenders may quote for your scheme through Instant Quotes, with no credit search.

It adds a cost and a condition that lenders now look for in the appraisal. In England, a new planning permission must deliver at least a 10% increase in biodiversity value unless an exemption applies, either on the site, on land elsewhere or, as a last resort, by buying statutory credits. Lenders want that cost priced into the scheme and the plan approved before they release build funds, because an unmet condition can hold up the start. Smart Funding Solutions, a whole-of-market commercial finance broker, checks how the biodiversity plan is costed before a scheme goes to development lenders.

Which schemes are exempt

• Small sites. For planning applications made from 6 August 2026, sites of 0.2 hectares or less within the red line boundary are exempt, unless priority habitat on the site is harmed.
• De minimis. Developments affecting less than 25 square metres of habitat, or less than 5 metres of hedgerow, are exempt.
• Self build and custom build. These are no longer exempt for applications made on or after 6 August 2026.
• Earlier applications. Applications already made before the change, and existing permissions, stay under the rules that applied when they went in.

The full list is on GOV.UK's page of developments exempt from biodiversity net gain.

Do I need a new build warranty for development finance?

In practice, yes, if the plan is to sell homes to buyers who need a mortgage. The UK Finance Mortgage Lenders’ Handbook says lenders will generally only lend on a newly built, converted or renovated home covered by a warranty scheme or a professional consultant’s certificate, so development lenders ask for the warranty to be in place before work starts. Without it the exit is at risk. If the units are slow to sell when the loan ends, development exit finance can repay the build loan while sales complete, and land finance covers buying a site before planning. Check what may be on offer for your scheme with Instant Quotes, which runs no credit search.

The main alternatives to a senior development loan are bridging finance for lighter projects, mezzanine finance or a joint venture to reduce the equity needed, and borrowing against property you already own; for change-of-use schemes, conversion finance may be a better fit.

• Bridging loans: short-term secured funding to buy quickly, fund light refurbishment or bridge a gap before longer-term finance.
• Auction finance: a form of bridging arranged to meet the tight completion deadlines of auction purchases.
• Mezzanine finance: a second-charge loan behind the senior development loan, reducing the equity you need. It costs more because it carries more risk.
• Joint venture finance: a funding partner provides much of the capital in return for a share of the profit.
• Secured business loans: borrowing against existing property to raise a deposit or fund further schemes, with that property at risk if repayments are missed.
• Commercial mortgages and portfolio finance: long-term borrowing to buy, hold or refinance property, often used as an exit.

Development finance is available to experienced developers and, on smaller schemes, first-time developers who can show planning, a viable appraisal, a deposit, a capable professional team and a credible exit. Lenders look at:

• Experience: your track record of similar projects. First-time developers can still be funded, often with a stronger deposit, a smaller scheme or an experienced professional team.
• Your contribution: evidence that you can fund the deposit and cover cost overruns.
• Planning: most lenders want planning permission in place before build funds are released.
• The numbers: realistic build costs, a contingency, the GDV and the expected profit margin.
• The professional team: contractor, architect and project manager.
• Exit strategy: evidence of demand, comparable sales or a refinance route.
• Credit history: of the borrowing company and its directors.

The same scheme can be viewed quite differently from one lender to the next. Some development lenders prefer small residential schemes and first-time developers; others only consider larger or commercial projects, want a named main contractor on a fixed-price contract, or will not lend until planning conditions are discharged. Matching the scheme to lender appetite early saves time on valuations that go nowhere.

Development finance usually involves interest plus fees, such as arrangement and exit fees, valuation, monitoring surveyor and legal costs. Pricing depends on your experience, the loan to cost and loan to GDV, the scheme's risk and market conditions. Always look at the total cost of the facility across the project, not just the headline rate.

Development finance is secured by a first legal charge over the site, so the land and the building as it is constructed are the lender's main security. Most lenders lend to a special purpose company set up for the scheme and take a debenture over it as well. Personal guarantees are often required. Many lenders limit them to a share of the loan, but they may also ask for cost overrun or completion guarantees, so check exactly what you are signing. Where a mezzanine lender is involved it takes a second charge, and the two lenders sign an agreement setting out who ranks first. If your deposit is short, some lenders will accept a charge over other property you own instead. Our guide to debentures and fixed and floating charges explains what is registered.

• Benefits: take on larger projects than your own capital allows; keep cash free for other opportunities; pay interest only on drawn funds; improve your return on the capital you put in.
• Risks: build cost overruns and delays eat into profit; property values can fall before sale; the site is security, so failing to repay risks losing it.